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The Actuary The magazine of the Institute & Faculty of Actuaries
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From the world of pensions

Pensions – informed choices

The government has published a paper entitled ‘Simplicity, security and choice: Informed choices for working and saving’.It brings together the government’s proposals aimed at breaking down the barriers which it sees as preventing people saving more for retirement. Much of the content is not new, and all of it is very broad, simply setting out another raft of intentions.

The three elements of the government’s ‘Informed Choice strategy’ are:

1 To build on the simplification measures in the green paper to maximise provision and ensure that everyone has access to good choices – recognising the importance of employer-sponsored retirement provision, the government is seeking to establish the best way of increasing pension scheme membership. It will then ‘work with employers to promote it’. The options under consideration are:

  • requiring new employees to make a decision whether or not to join the scheme;
  • asking employees to commit potential future earnings to the pension scheme; and
  • automatically including employees in the scheme unless they opt-out.
  • Also the government will look at whether it would be worthwhile requiring new employees – whose employer only offers them stakeholder access – to make a default contribution.

    2 To raise overall levels of financial education and awareness of the need to plan and provide for retirement – the government will work with the Financial Services Authority (FSA), and others, to try to ensure people are equipped to understand the information they are provided with. Some of the measures set out in the paper are:

  • finance education to be included in the National Curriculum;
  • Department for Work and Pensions (DWP) to set up an integrated retirement planning service;
  • government to work with the Employer Task Force and Association of British Insurers (ABI) to develop ways to encourage employers to support employees in their retirement choices; and
  • powers to be included in the Pensions Bill to require employers to ensure their employees have access to a decent standard of pensions information.

    3 To ensure all people of working age have access to personalised information so they can understand how the choices available relate to their own retirement prospects – the paper sets out what the government has already done to improve the provision of tailored information – such as starting to issue automatic state pension forecasts. Also:

  • it plans to make ‘what if’ pension forecasts available showing the effect of deferring state pension (to be available in 2005);
  • as previously set out in the green paper, defined benefit schemes will be required to provide annual benefit statements from April 2005;
  • also as previously set out in the green paper, reserve powers will be included in the Pensions Bill enabling the government to compel schemes to provide combined pension forecasts in the future, if necessary; and
  • it plans to develop a web-based retirement planner to go live in spring 2006.
  • Annex 2 of the paper contains a timetable for the Informed Choice agenda. This includes a reference to the expected Budget announcement on the tax simplification proposals. The wording in the timetable suggests that both the increase in minimum pension age and the flexibility to work and draw an occupational pension at the same time will be introduced regardless of whether the whole tax simplification package is taken forward. This is welcome.

    The timetable also confirms that the government intends to introduce an age discrimination bill into Parliament by the end of 2004.

    But conspicuous by its absence from the timetable is any reference to the Pensions Bill…

    Opra reporting

    Following the publication of a revised version of Opra Note 1 for advisers, Opra has published new guidance on when it expects trustees to report late payment of contributions. Opra Update 5 reflects Opra’s new approach to reporting, focusing on breaches that could constitute a significant risk to members’ security. Opra does not want trustees to report:

  • isolated late payments, where the matter has been put right and action taken to prevent recurrence;
  • a temporary failure to pay the correct contributions when due, where the contributions were paid promptly when the failure was found, and the administrative failure has been, or is being, corrected in an effective and timely way; or
  • short periods of lateness of small amounts of contributions resulting from, for example, changes in pensionable pay, or new members joining, where the contributions have subsequently been corrected.

    Where a late payment raises concerns about the conduct of the employer, Opra wants to receive a report. For example, trustees should report if an employer:

  • is using the contributions to alleviate cashflow difficulties; or
  • does not have arrangements in place to ensure the normal correct and timely payment of contributions due.
  • Where the breach may pose a significant risk to members’ interests, trustees should report immediately, putting the breach in context and outlining any other concerns.

    From now on, Opra only expects trustees to report when contributions remain outstanding 90 days or more after their due date. However, trustees must nonetheless notify scheme members when contributions are paid 60 days, or more, late. They must do this within 90 days of the due date.

    Latest ACA pension trends survey

    The Association of Consulting Actuaries (ACA) has issued preliminary results from its 2003 survey of smaller firms’ (firms with 250 or fewer employees) pension trends.Key findings include:

  • the prevalence of group personal pensions (44% of respondents, with average combined employee/employer contributions of 8.6% of earnings);
  • only 36% of defined benefit schemes are still open to new members (average combined employee/employer contributions of 21% of earnings, up 2.1% from last year);
  • of firms offering a pension, 60% record greater member interest as a result of recent ‘bad press’;
  • 58% of firms support the Pensions Protection Fund (but, for most, that support will depend on the level of the levies); and
  • 64% of firms oppose trustees having the unilateral power to wind up a scheme.

The survey attracted responses from 459 firms, selected on a random basis. Smaller firms, as defined for the survey, employ 55.6% of the UK working population.